Hello and welcome to the Array Technologies' Fourth Quarter and Full Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Cody Mueller, Investor Relations at Array Technologies. Please go ahead.

Good evening and thank you for joining us on today's conference call to discuss Array Technologies' fourth quarter and full year 2022 results. Slides for today's presentation are available on the Investor Relations section of our website, arraytecinc.com. During this conference call, management will make forward-looking statements based on our current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect. We identify the principal risks and uncertainties that may affect our performance in our reports and filings with the Securities and Exchange Commission, which can also be found on our Investor Relations website. We do not undertake a duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's fourth quarter press release for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures. With that, let me turn the call over to Kevin Hostetler, Array Technologies' Chief Executive Officer.

Thanks, Cody, and welcome everyone. In addition to Cody, I'm also joined by Nipul Patel, our Chief Financial Officer; and Erica Brinker, our Chief Commercial Officer. Let's begin on slide four, where I will provide some highlights of our fourth quarter and full year results. We closed out 2022 with continued strong performance as revenue, adjusted EBITDA, and adjusted EPS were all above the midpoint of our previously issued full year guidance. Despite the continued module availability challenges and a number of site closures due to weather late in the year, we were still able to deliver revenue in the quarter of $402 million. This represents an increase of 83% from the prior year's fourth quarter, of which 22% was organic growth within our legacy Array segment. This puts our full year revenue at $1.638 billion, which exceeds the high end of our guidance range for the year and represents organic growth of nearly 50% and total growth of 92% from 2021. It is important to take a minute and put that growth in context. 2022 was a year marked with consistent module availability challenges; from WRO in the beginning of the year, to ADC BD in the spring and summer, and finally, the UFLPA in the second half of the year. The design of our Tracker system, where we do not require pre-drilling into the torque tube, allowed our customers to make a more flexible approach to the design of their sites in close conjunction with our applications engineering team. In instances where module availability was unknown during the design process, Array was able to support customers by designing a site with multiple module options. This ensured that as soon as modules became available, the time to install was greatly reduced. This is a testament to not only the unique design of our products, but also to our in-house engineering expertise. As I move down to gross margin, I'm happy to report that for the fourth quarter, our total company gross margin was 20%, which represents over a 1,500 basis point increase from the fourth quarter of last year and is well within the high teens to low 20s benchmark we established as an exit point for 2022. This brings full year gross margins to 13.9%, which is a 420 basis point increase from the prior year gross margin of 9.7%. Almost two years ago, when our company felt the impact of the rapid rise in commodity prices, we moved quickly to change the way that our business operates to minimize the potential future impact of rapidly escalating commodities. We also outlined our path to get back to our historical gross margin profile. This quarter marks an important closeout to that journey as we are finally back into the range that we would expect as a baseline gross margin for the business. As we move into 2023 and beyond, I'll be happy to no longer address the impacts of those legacy priced contracts on our gross margin. On the back of the volume growth and improved profitability, adjusted EBITDA for the quarter grew to $52 million, up from $0.5 million in the prior year. And for the full year, it grew to $129 million, up from $43 million in 2021. This means our adjusted EBITDA in the fourth quarter of this year was higher than the full year in 2021. This is an indication of just how far our company has come in a short period of time. Finally, we delivered $131 million of free cash flow in 2022, anchored by $86 million in the fourth quarter alone. The results here are indicative of our intense focus on both improving our profitability and our working capital efficiency. As we wrap up 2022 and move into 2023, we do so with a lot of momentum. Our growth is undeniable. We have the largest market share in the US, which will have significant volume gains in the coming years, our margins are the best in the industry, and we have solidified our balance sheet and liquidity to position us for future growth. Now, let's move to slide five to talk a little bit more about future growth and the state of the industry both here in the US and in the rest of the world. Starting first, the more near-term outlook here in the US. Our volume outlook for 2023 still supports a healthy level of growth despite ongoing uncertainty in a couple of areas. First, the UFLPA has shown some recent positive signs of improvement, but the fact remains that module availability is still a concern to customers until we get to a more final resolution. We will continue to approach forecasting the impact to us in a similar fashion as before, assuming a slightly slower conversion of projects as we work to offer flexible solutions to our customers. And second, the timing of demand acceleration from the implementation of the IRA domestic content provision. Projects are still moving forward in what we would say is a status quo manner. This means we have not yet seen an acceleration of new projects, but are still seeing a steady level of order activity as demonstrated by the roughly $500 million in orders received in Q4. While there are some other dynamics at play here like permitting, labor availability, etc., the main feedback we get is that there needs to be clarification from the Department of Treasury on what qualifies as domestic content under the IRA. For developers that have some flexibility in their project timing, it is worth waiting to ensure they maximize the return from this provision. Once we do have resolution in this provision, we would expect to see order activity increase. On the manufacturing credit side, we remain consistent with our belief that there is roughly 15% of the overall tracker price worth of value in these credits. This estimate does not include our clamping solution, which is included in the final guidelines; that would be an incremental benefit. However, we still do not know the timing of when the credits can be applied for and what the ultimate transferability will be. Because these credits are retroactive applicable to January 1st of this year, we certainly expect some benefit from these credits, but we can't yet estimate what the value will be or where it will show up in our financial statement. Due to the uncertainty in these two areas, we have made the determination not to include any potential direct benefits from the IRA to our profitability in our 2023 guidance range. When we do receive more clarification, we will provide as much transparency as we can into the financial impact on Array. As we look past 2023, there are a couple of observations that I believe are important to point out. As has been true for a while now, the long-term demand health in the industry remains incredibly strong. We expect that solar energy will become a 50-state solution and that it will lead to an increase in the geographic diversity of the sites that will be built. This means more challenging terrain and weather conditions will become the norm, not the exception. For tracker companies, it will be increasingly important to offer a diverse set of products in order to maximize the site's energy output. In the next slide, I will outline how exactly we are going to do that at Array. Finally, with the level of transparency and sharing of benefits that will occur in the industry due to the IRA, it will be difficult for industry participants to maximize their returns with transactional relationships; long-term partnerships across the supply chain will be key, and we are confident that the strategic relationships we have built over the years will enable us to maximize our benefits under this bill. If we shift towards our non-US business, there is also a lot to be excited about. In Brazil, we expect to see a strong 2023 as many large utility scale projects move forward post-election. This will augment our already strong distributed portfolio in that region to help deliver healthy growth. Another bright spot for us is in Australia. We just announced our VRET2 win on the Glenrowan project, which was predicated on being able to provide locally sourced products. It is important to note that we were the first tracker company to establish this local content footprint, which we expect will allow us to take advantage of the growth in this region over the coming years. Western Europe continues to see steady installations, but we have yet to see a true catalyst for growth like the IRA here in the US. With the energy dynamics in the region, it is hard to imagine that accelerating growth in utility scale solar is not coming. But until it does, we expect relatively tempered growth in the near term. And finally, we are constantly evaluating new geographies. But we will continue to do so in a methodical and disciplined way, ensuring that any market we get into is one where we have a strong value proposition and that we can maintain the strength of our margin profile. Being successful in this expansion both in the US and outside of it will be highly dependent on the products and services we can offer to our customers. If we turn to slide six, I'd like to provide some additional color into our portfolio of offerings. With our announcement late last year, two additional product offerings, OmniTrack and the H250's availability for the US market, we offer our customers a broad set of trackers. With our flagship DuraTrack product, we are still the only tracker provider who can offer up to 32 linked rows, thanks to our patented drive line. This remains a key competitive differentiator as it allows for far fewer parts than other independent row systems, which means lower operating costs over the life of the project. Based on the DuraTrack architecture, we also launched our terrain following tracker, OmniTrack, late last year. We are currently quoting for deliveries late in 2023. OmniTrack allows for up to 1% north south slope change in the torque tube, which is the best in the industry. What that means practically is that we can greatly minimize or even eliminate the need to do site preparation work. This benefit is becoming increasingly important to our customers as sites move to regions of the US, where flat land is not commonplace. As an added benefit, it also reduces permitting costs and is more environmentally friendly as the natural landscape does not have to be disrupted. And finally, with the introduction of the H250 into the US market, we now offer a tracker which can be optimized for smaller or more irregular shapes, where a customer may not get the full benefit of DuraTrack's linked row architecture. This allows us to target projects that may not have previously fit our criteria for profitability, effectively increasing our available market here in the US while still being able to maintain our target gross margin. Cutting across the Tracker portfolio is our SmarTrack software suite. We have already deployed our backtracking and diffuse light versions of this software to multiple gigawatts of projects. But as we move into 2023, I'm happy to announce that we will expand the capabilities of this software to provide even further benefit to our customers. Here in the next few months, we will introduce SmarTrack's weather response. This upgrade will allow the tracker to connect directly to a local weather provider in order to anticipate and adjust to upcoming severe weather events, namely hail and snow. For hail stow, it will put the tracker in the best defensive position to minimize any damage to the modules. For snow stow, it will put the modules at a maximum tilt to minimize the amount of snow load that accumulates on the tracker at any given time. This will allow a site to be designed with fewer foundations and lowers the strength required in a module mounting interface. These updates further strengthen our software offering and our value proposition to our customers. With that, I will turn the call over to Nipul.

Thanks, Kevin. Please turn to slide eight. Revenues for the fourth quarter increased 83% to $402.1 million compared to $219.9 million for the prior year period, driven by higher ASP on our DuraTrack product and the acquisition of STI. The $402 million in revenue reflects $269 million from the legacy Array segment and $133 million from the FTI segment. Gross profit increased to $80.5 million from $10.3 million in the prior year period, driven primarily by an increase in volume from the acquisition of STI as well as ASP growth in our legacy Array segment. Gross margin increased to 20% from 4.7% as the legacy Array segment had minimal impact from our legacy price contracts in addition to strong margin performance in our FTI segment. Gross margin for the legacy Array business was 18.2% and the FTI business had gross margin of 23.8% in the quarter. Operating expenses increased to $64.2 million compared to $30.3 million during the same period in the prior year. The higher expense is primarily related to a $24.7 million increase in amortization expense related to the STI acquisition. The remaining increase represents the additional operating expenses from the FTI business as well as higher headcount-related costs to support the company's growth and innovation. Net loss attributable to common shareholders was $17.3 million compared to a net loss of $32.1 million during the same period in the prior year and basic and diluted loss per share was $0.11 compared to basic and diluted loss per share of $0.24 during the same period in the prior year. Adjusted EBITDA increased to $51.7 million compared to $453,000 for the prior year period. Adjusted net income increased to $15 million compared to adjusted net loss of $7.8 million during the same period in the prior year and adjusted basic and diluted net income per share was $0.10 compared to adjusted diluted net loss per share of $0.06 during the same period in the prior year. Finally, our free cash flow for the period was $85.7 million versus a use of cash of $98.5 million for the same period in the prior year. Now, turning to our full year results on slide nine. Revenue for the year increased 92% to $1.638 billion compared to $853.3 million for the prior year, driven by an organic increase of $414.6 million or 49%, attributable to both an increase in the total number of megawatts shipped and an increase in ASP. Revenue growth was also driven by the acquisition of STI Norland, which contributed revenue of $369.7 million. In 2021, we shipped 9.6 gigawatts at an average selling price of $0.088 per watt. In 2022, we shipped 14.4 gigawatts at an average selling price of $0.113 per watt. Gross profit increased to $227.3 million from $82.9 million in the prior year, driven by the increase in volume both from the acquisition of STI as well as our organic growth. Gross margin increased to 13.9% from 9.7%, driven by a larger portion of higher-priced contracts and the addition of STI. Operating expenses increased to $245.4 million compared to $107.6 million in the prior year. The higher expenses were primarily related to a $74.7 million increase in amortization expense related to the STI acquisition. The remaining increase represents the additional operating expenses from the FTI business as well as higher headcount-related costs to support the company's growth and innovation, as well as higher professional fees related to the acquisition of STI and increase in legal and audit fees. Net loss attributable to common shareholders was $43.6 million compared to net loss of $66.1 million during the prior year and basic and diluted loss per share was $0.29 compared to basic and diluted loss per share of $0.51 during the same period in the prior year. Adjusted EBITDA increased to $128.7 million compared to $43.2 million for the prior year due to higher gross margins. Adjusted net income increased to $57.3 million compared to $8.7 million during the prior year and adjusted basic and diluted net income per share was $0.38 compared to income per share of $0.07 during the same period in the prior year. Finally, our free cash flow for the year was $131 million versus negative $267 million for the prior year. The increase was driven by both improved profitability but also an improvement in our cash conversion cycle of 35 days, from 110 days in the fourth quarter of 2021 to 75 days in the fourth quarter of this year. Now, I'd like to go to slide 10, where I will discuss our outlook for 2023. For the full year 2023, we expect revenue to be in the range of $1.8 billion to $1.95 billion. We anticipate that the growth we will see will come from an increase in the number of megawatts shipped as we are forecasting flat ASPs for the full year 2023 when compared to the full year 2022. We expect adjusted EBITDA to be in the range of $240 million to $265 million. We expect adjusted EPS to be in the range of $0.75 to $0.85 per common share. Next, I'll break down some further elements of our forecast. From a quarterly perspective, we continue to expect the first quarter to be our lowest of the upcoming year due to normal seasonality, project pull-ins to 2022, and module availability challenges. Accordingly, we expect revenues in the first quarter to be down approximately 20% sequentially from the fourth quarter. After the first quarter, we expect our normal seasonal linearity with our biggest volumes coming in the second and third quarters before a slightly lower fourth quarter due to seasonality. From a gross margin standpoint, we expect both segments to achieve low 20s for the full year, although we could see single quarters in the high teens based on project mix and absorption of fixed costs. For adjusted SG&A, we expect between $30 million to $33 million per quarter. This spend level does represent an increase from the prior year in dollars as we continue to invest in innovation and building the right business for us to efficiently grow in the future. I will note though that even as we continue to invest as a percentage of revenue, this spend is relatively flat year-over-year. For interest, we expect between $10 million and $11 million per quarter, and for preferred dividends, we expect between $13 million to $14 million per quarter. Both of these ranges are inclusive of the non-cash portion. We expect our GAAP effective tax rate to be between 24% and 26%. And finally, we expect that we will again deliver over $100 million in free cash flow. As we think about our planning parameters as Kevin mentioned, while we believe the IRA will positively impact our business and financial performance, we do not have enough information about the timing or magnitude of those impacts to include them in our 2023 guidance. Once we receive additional information, we are committed to providing an update on any potential benefits. Also, we have not assumed any negative impact from the recent bank failures. A couple of points on our assessment here. First, we do not have any direct exposure to any of the banks that have recently failed and do not currently have any deposits or investments in any regional banks. As far as indirect exposure, on the immediate cash flow side, we have not yet identified any customers who indicated that they have been impacted or that they will not be able to pay in a timely manner. On the longer-term project financing side, while we obviously cannot and will not try to predict any potential impacts of a protracted credit tightening, we will note that the vast majority of our business is large utility scale projects backed by well-capitalized large developers, who would be better suited to withstand this type of event should it occur. Now, I'll turn it back over to Kevin for some closing remarks.

Thank you, Nipul. It has been almost one year since I started as the CEO of Array and I'm incredibly proud of what the team has accomplished during that time. No doubt there have been some challenges, but I firmly believe those challenges have made us a better company. So, I want to thank the entire global Array team for all of their hard work over the last year and I look forward to all we will accomplish in the future together. With that, operator, please open the line for questions.

Thank you. And at this time, we will conduct our question-and-answer session. Our first question comes from Brian Lee with Goldman Sachs. Please state your question.

Hey, guys. Good afternoon. Thanks for all the color here. I guess one question, Nipul, just starting off on the guidance, appreciate the volume versus price commentary you provided here as to what you're embedding in the outlook. But can you also give us a little bit of color as to per geography, sort of your view on volume versus price trends, baked into your 2023 outlook? And then also, I'm a little surprised to hear that pricing is flat versus 2022, I would have thought maybe pricing has a little bit more tailwind into 2023. So, are you being conservative there? Could we see some potential upside emerge on the pricing side of things, whether IRA-driven or not in the back half of the year? Just trying to get a sense of where your head's at around pricing?

Sure. Hey, Brian. From a pricing perspective, we look at it by geography. Overall, we're relatively flat as we stated, but I would say we're a little bit higher on the FTI side. And as far as pricing staying flat overall, we think that there's probably a little bit of upside in there. But at this point, we can't see that, so therefore, we've called it flat for the year.

Okay, fair enough. And then I know it's still sort of too early to make a call on the IRA potential impact, although you're optimistic. Can you again level set us as to, one, where lead-times are today for your US shipments? And then two, sort of what the timeframe you would expect or need a bit more clarity for some of your ongoing discussions with your supply chain and customers to materialize into some of that upside that's potentially out there?

Yes, from a lead-time perspective, we are currently at approximately 14 weeks for US projects. We continue to engage with our customers, and as the language becomes clearer, we believe we will be able to return to the market with any potential benefits that arise from that. However, our lead-time remains steady at around 14 weeks.

Thank you. Our next question comes from Philip Shen with Roth MKM. Please state your question.

Hey guys, thanks for taking my questions. First one is on bookings year-to-date, was wondering if you might be able to give a little bit more color on that. I know you haven't seen the full acceleration yet from the IRA given the timing of the guidance from treasury. That said, could you share where things stand thus far the first quarter is almost over here? Thanks.

Yes. Hey, Phil, Nipul. So, we continue to have solid bookings for the quarter and we're essentially done with the first quarter here. We still see strong momentum here in the first quarter of the year. So, we feel good about heading into 2023.

Thanks, Nipul. Regarding the backlog, you mentioned margins in the high teens to low 20s. Your guidance for 2023 indicates margins greater than 20%. Does this imply that the lower margin backlog might be more relevant in 2024 and beyond? Could you clarify this for us? Thanks.

Yes, we assess projects individually when discussing the margins in the low teens and high 20s in the order book. As noted earlier, there will be certain quarters where fixed cost absorption may lead to margins in the high teens rather than the low 20s. However, for the year ahead, we anticipate maintaining margins in the low 20s for both segments.

Great. Really appreciate the color. Sorry for the noise in the background. One last one here. In terms of free cash flow, you guys had $130 million last year, you guided to more than $100 million this year of free cash flow. Are you planning to de-lever and not draw down on the preferreds? Specifically, why is the preferred dividend this year higher? It's $13 million to $14 million a quarter versus $48 million total last year. Are you thinking of drawing down more on the preferred Series A? If yes, how much dilution might that imply? Thanks.

Great. Now, that doesn't have to do with dilution. We're not planning to draw on the preferred at this point. What that really means there, if you recall, we had drawn a bit of the preferred at the beginning of the year. So, you've got the full year impact of that in there. And then we will make an assessment each quarter on kind of what the lowest cost of capital is when we decide to accrue the dividends and pay down the term loan instead based on the variable rate we have on our term loan. So, that's really the reason why you see a little bit higher in the preferred for 2023.

Thank you. Our next question comes from Mark Strouse with JPMorgan. Please state your question.

Hi, good afternoon. It's Drew on for Mark. Thanks for taking our questions. Just want to touch on the new products quickly. Can you just talk a little bit about what the H250 and OmniTrack are seeing from a market receptivity standpoint and how that's translating into orders and then what's kind of the timing outlook for future shipments?

Hi, this is Erica. I'm pleased to address this. From a product standpoint, we are focused on meeting the specific needs of our customers on a project-by-project basis. We aim for a consultative approach, tailoring our offerings based on factors like site topography and wind speeds. DuraTrack has been our leading product for several years, complemented by the OmniTrack, which follows the terrain and expands land usage possibilities without disturbing the ground. It also considers environmental factors since no dirt needs to be moved. The H250 enhances our flexibility for uneven land boundaries, and while the 32-row configuration is sometimes effective, the dual-row design with the H250 often proves to be a better option for customers. Our goal is to broaden the market we can serve through collaboration with our clients.

Okay, great. Thank you.

From a customer perspective, when the demand is high, they appreciate being able to reduce lead times by utilizing our OmniTrack product without the need to move land. We are receiving feedback that customers want it as soon as possible. We are thrilled to have three products available to us. Additionally, we aim to ensure that our SmarTrack software operates across all our tracker lines, providing our customers with consistent software delivery and increased productivity at their sites.

Okay. And then just kind of a follow-up on that. Any thoughts on when shipments might be starting? And then also is that having any impact on why pricing might be somewhat flat and not increasing in 2023?

Let me address the pricing issue. As many of you may have noticed, steel prices had been declining significantly until about the last three weeks. We were experiencing a trend of deflation, which led to discussions with analysts about whether we needed to lower our prices since steel was clearly lower than last year. However, steel prices have started to increase again over the past three to four weeks, and we are adopting a cautious approach due to the rapid changes. Despite this, we are insulated from margin hits concerning steel, although it does influence overall pricing. Based on our projections, we see a combination of factors at play. Steel and aluminum prices are still lower compared to this time last year, while we are also facing more complex sites needing extra engineering and materials to function effectively, which is why we expect flat pricing. Additionally, as Nipul mentioned, we have not accounted for the effects of the IRA related to manufacturing credits, nor the advantages of our robust domestic supply chain. Depending on the ultimate details of domestic content requirements, we might gain some pricing leverage in the second half of the year due to this strength. We have not included domestic content pricing in our offers to customers, who would need to pay a premium for a higher percentage of domestic content to receive that extra 10% benefit. As always, we are taking a cautious stance on pricing right now. Once we have more information and a clearer outlook on commodity prices, especially steel and aluminum, we will revisit and update our pricing expectations for the latter half of the year.

That is very helpful. Thank you, Kevin.

Our next question comes from Julien Dumoulin-Smith with Bank of America. Please state your question.

Hey guys. Thanks for the time. Congratulations for everything. Hey, just coming back to domestic content, I just want to really square this away. I mean, just what exactly incremental do you need? I mean, obviously, you're doing a lot already here. Just in terms of clarity, specifics, and guidelines, again, I know you guys are probably in the mix in discussing these items here, but specifically as we see preliminary and final? And also, are you expecting kind of a little bit of an air pocket in the backlog as you think about that being kind of pent-up demand realized after finalized guidelines here? Is that the commentary as you think about that?

Julien, the demand we've observed so far appears to be independent of the IRA, so we haven't experienced a significant increase yet. We don't view our current backlog as having any gaps; it reflects the steady demand we've consistently experienced, not accounting for anticipated growth from the IRA. To address the first part of your question, we're awaiting clarity on two key issues. The first is the definition of domestic content, which is still unclear as there are several definitions under consideration by Treasury. One definition would allow the importation of steel from China, processed in the US, to be labeled as domestic, while another stipulates that the steel must be sourced entirely from within the US. These positions are quite different. If the requirement is for pure US steel, we would hold a significant competitive advantage due to our long-established US supply chain and strong relationships, unlike others in the industry who source steel from abroad and only have a couple of rolling mills in the US. Therefore, based on this definition, we could be either at a minimal disadvantage or have a notable competitive edge, which will impact our market share and pricing power, prompting us to exercise caution until we gain more clarity. The second aspect we're waiting on involves further clarification regarding the final definitions of the torque tube and structural fasteners. We have a clear understanding of the torque tube definition, which we've shared is between 0.15 and 0.17, indicating that around 15% of the tracker cost benefits us, which we expect to share among our suppliers, ourselves, and somewhat with our customers. We are optimistic about this. However, it hinges on how comprehensive the structural fasteners definition will be, as including clamps and clamping systems could significantly benefit us, given our manufacturing capabilities in Albuquerque, New Mexico. These subtle distinctions in terminology can greatly affect our access to credits and their magnitude, and without sufficient clarity, we are unable to provide the market with projections.

Got it. Excellent. And just on the international side, the trajectory here you guys in Brazil, it seems nice. The time of the deal, it seemed like you got it a little bit more flattish in the FTI in Brazil specifically. And how you think about that outlook and the compounding first prospects there across the various geographies just to quantify perhaps qualitative comments on the call a little bit more?

Yes. So, in Brazil, over the last year, what shifted first in Brazil was less of the larger utility scale programs and much more than distributed generation programs. And that had to do with two things. Obviously, we had a great competitor come into Brazil and work really well; that's one part. And the second part was the funding from the national banks in Brazil who really support a lot of the green initiatives kind of pulled back waiting for this presidential election. Almost immediately after the presidential election, we started to see a lot of those utility scale programs go forward. And I'm quite pleased that our outlook in Brazil was very strong for this year and it's a very good mix of both utility scale and distributed generation products, but we're very bullish on the growth that we see coming in Brazil this year.

Awesome, guys. Congrats again. See you soon.

Thanks.

Thank you. Our next question comes from Maheep Mandloi with Credit Suisse. Please state your question.

Good evening. Thank you for taking my questions and congratulations on the successful quarter. I have two questions. First, regarding operating expenses, if I consider the upper end of the range, it suggests approximately 7% operating expenses compared to your revenues. I'm trying to understand if we can reach that high teens EBITDA margin you mentioned previously, and whether we can expect to achieve over 25% gross margin in 2024. Additionally, I'd like some clarity on how we should view operating expense leverage moving forward. Thank you.

Hey, Maheep. It's Nipul. So, as discussed in the prepared remarks, there's investments that we need to make here in 2023. And as margins continue to steady at the baseline low-20s and potentially increase from there as we get more clarity on the IRA, in 2024, we feel like we'll get the operating expense leverage that this business can absolutely operate under. So, that's where we think that we'll get back into the higher EBITDA ranges in 2024 and beyond.

Got it. And just a second question on the UFLPA here. How should we think about any upside here to this year's revenues? If we see UFLPA resolution faster here, any color you can give on how much time it takes to deliver the tracker once you have a purchase order in place? Any color could be helpful here? Thanks.

Yes. Hey Maheep. So, as far as the UFLPA is concerned, where we would see that is our order book converting faster. So, if UFLPA gets cleared quicker, as modules get cleared quicker, we would see a faster conversion on our order books. So, we could potentially see that order book converting, and as we add to it, potential upside related to that.

Any way you can kind of help us quantify how much of that order book could be delivered in 2023 if needed?

Yes. When you look at our order book and look 12 months ahead, it's about 1.1 times the order book is what our midpoint guide is. So, that conversion could happen a little bit quicker if the UFLPA gets cleared quicker.

Our next question comes from Donovan Schafer with Northland Capital Markets. Please state your question.

Thank you for the questions. My first inquiry is about Nucor, the supplier you've been working with for nearly two years. Could you share details regarding the duration of that contract, specifically if there’s an expiration or a fixed volume commitment? Additionally, how much of your run rate capacity or backlog does this contract represent? I'm trying to understand whether you're positioned to secure more domestic sourcing in the U.S. and potentially limit competition, or if it will require negotiation and create challenging situations. Any specific insights on Nucor would be appreciated.

Let me begin by stating that our specific contractual terms with Nucor are confidential, and we will respect that confidentiality. Therefore, I won't delve into the details of the contract. What I can share is that Nucor is one of several key steel suppliers and partnerships we've established over the past few years. They play a vital role in our operations and are excellent partners. We collaborate closely with them to understand future demand and ensure that their geographic presence aligns with our future needs to minimize transportation costs. Our working relationship is solid, and they are a significant partner for us. This collaboration contributes to our confidence in having a well-developed North American capacity and supply chain, which we believe is among the best in the market. That summarizes what I can say on this topic.

And Don, I wanted to add that we've talked about it before by the end of Q1 that we'd have 40 gigawatts of global capacity, about 32 of that in the US. So, Nucor, of course, is part of that overall capacity planning.

We are increasing that every quarter, Donovan. If you think about an expanded bill of materials, we have overall capacity and a portion of that capacity can currently be activated to meet domestic content requirements as we understand them. This is our main focus. We discussed in our last call that our standard building materials currently have between 70% and 75% domestic content, and with a slight premium, we can reach 90% to 95% domestic content in the building materials. We are really concentrating on maximizing the percentage of that 32 gigawatts that can achieve around 95% domestic content.

Okay, great. That's helpful.

And we're increasing that, Donovan. Every single quarter, we're increasing that. So, you can imagine an exploded bill of materials. What we have is the overall capacity and then a percentage of that capacity that can today be turned on to qualify under domestic content as we understand it. So, that's what we're focused on. We've talked openly on our last call about our standard building materials today having between 70% and 75% domestic content, and that's having the ability with a small premium to reach up to that 90% to 95% domestic content in the building material. Our main focus is the percentage of that 32 gigawatt that we can get up to that 95% domestic content level.

Okay, great. That's helpful.

We have noticed several recent launches in the industry that appear to be much more similar to Array than to others. We are closely monitoring this and discussing it internally on a regular basis. Regarding the tube, with the right dies in place, you could roll it into various shapes, including octagonal or hexagonal, so that's not the main barrier at this stage. The key challenge lies in our proprietary clamping system, which allows us to build infrastructure without needing to know in advance which panels will be used. We can design for multiple panel options, and when we obtain the panels, we can provide the appropriate clamp for them. This approach also accommodates sites with mixed panel types. As companies seek to meet their domestic content requirements, they may face limited availability of US-made panels over the next few years. In such cases, a customer might start one site with mostly solar panels due to their availability, but once they reach their 40% domestic content target, using more of those panels at that site might not be optimal compared to saving them for another location. Our infrastructure enables this flexibility in a way that distinguishes us from others, and we consider this a significant trend in the market.

Thank you. And our next question comes from Colin Rusch with Oppenheimer. Please state your question.

Thank you very much. Can you discuss how many of your customers are fully qualified with the OmniTrack solution currently? Is it the entire customer base or just a portion of it at this time?

We're rolling OmniTrack out this year in select areas to make sure that it's properly installed by our partners and obviously looking at the ideal topography in which to install it. But certainly, any of our customers would be welcome to use it with the correct requirements.

As you consider enhancing customer relationships with the new designs, are there additional opportunities for engineering improvements, particularly in areas like footings, where you could decrease field labor and shift more work to the factory setting in the coming years?

Yes. Colin, I think part of what you're seeing in that OpEx spend next year is kind of when I came in, I made a commitment to our engineering organization and our CTO and effectively said, look, one of the best uses of my capital is in new product development. And I looked at Erica's product management team and Terry's engineering team and made a commitment that if they bring forward really robust new product development initiatives, I will fund them, right? And that's really what you see in that OpEx increase. So, we've increased our engineering spend this year, certainly over 35%, and that's part of what you see in the OpEx line. And that's really all about there's a large number of products that we think we could bring to bear to the market that are really focused on a few areas. Obviously, you've seen us disclose a lot more of what we're doing on the software side of things, and there's more to come beyond this. A lot more areas where we can ease installation and reduce installation costs. So, I think this is a year of what I would say a rapid succession of product launches of a lot of what I would say maybe small to midsize new product development initiatives, but I think we're going to be really welcome by our customers as we go forward throughout the year.

That's super helpful. Thanks, guys.

You got it.

Our next question comes from Jeff Osborne with TD Cowen. Please state your question.

Yes. Thank you. I just had two quick ones. One is on your Spain business. I was curious what you're seeing there? And I think a couple of quarters ago, you had some challenges on the EPC side of the business there. I was curious what initiatives you put in place to improve the profitability on that front?

Yes. So, Jeff, one of the main challenges we faced in the Spain business was related to attempting construction projects in the US for some of our Spanish customers who were making global installations at the request of a specific customer. They lacked the experience needed to operate in the US. To address this, we partnered with Array and STI, assigning several Array team members to support these projects as Project Managers in the region. They are helping with labor hiring, management, and negotiating with unions necessary for these projects. Additionally, a significant benefit came from the end customer's inability to maintain a steady supply of panels. This lack of supply created a delay in the program which allowed us to renegotiate some of the labor terms that were originally agreed upon but not ideal. As we proceed with these projects, they will be executed under better terms now that we have a clearer understanding of the projects' complexities and the requirements needed for their completion.

Got it. That's very helpful. And my follow-up is on a completely different topic. But on the backlog developments that you've had in Q4 and Q1, are you actually having conversations around 2024 deliveries yet? Or are folks developers waiting for the IRA clarity to be announced to have that visibility in place?

Yes, we're doing both. Obviously, we have customers as we continue to discuss that are talking about larger programs of gigawatts of business over the next several years. Those are conversations that are ongoing. I think some of those programs are coming through and others are just waiting for that clarity as they determine to what degree they need to put, how many eggs in a raised basket depending upon, for example, the domestic concept provisions.

Just to clarify, our order book currently only includes the system-named projects. What Kevin is referring to are the opportunities we are exploring, but they are not yet part of our order book.

Yes, absolutely.

But if I'm hearing you right, you have MSA agreements with developers that might go out three or five years, but named projects might only go out 18 to 24 months. That's the right way to think about it?

The size of the projects will depend on how long they go out. But that's the way to think about it, Jeff.

We want to clarify that our backlog, when compared to others in the industry who have recently discussed theirs, does not include long-term megawatt commitments with customers. Therefore, our backlog is more directly translated into a future revenue stream, making it more predictable than others. If we were to include those commitments, our backlog number would be significantly higher. However, we prefer the clarity and visibility of our backlog and its conversion to specific revenue within a defined timeframe.

Got it. Thank you.

Thank you.

Thank you. Our next question comes from Joseph Osha with Guggenheim Partners. Please state your question.

All right. I made it. Thank you and hello everyone.

Hi, Joseph.

Hi. I wanted to return to some of the comments that you were making about domestic content and how that reflects as pricing with your customers? I want to understand the logistics of this. If you have an order in hand and you're unclear yet about whether your customers are going to be able to claim the domestic content credit or not. Is there something written into the contract that allows you to reopen the conversation depending on the outcome of IRS guidance or what? I just want to make sure I understand exactly how this works.

To clarify, the orders in our backlog do not have any specific domestic content requirement, which means we can fulfill them using our standard bill of materials at 70% to 75%. Alternatively, we can increase the domestic content if needed. Looking ahead, as the domestic content requirements become more defined and our clients begin to calculate what they need to reach their targets of 40%, then 45%, and eventually 55%, they will approach us with requests for increased domestic content on specific projects. They will want to know what the additional cost would be to increase from 75% to 95%. This would likely result in a change order in the contract. However, at this moment, we are not including any increased domestic content specifications in our proposals.

Okay. So, again, so basically the way it's written now, it leaves you the option basically to say, hey, this is a change order. If somebody comes back and hits you with a specific request?

That's correct.

Our next question comes from Jordan Levy with Truist Securities. Please state your question.

Afternoon all. Can you hear me okay?

Yes.

Got you. Yes.

Great. Thanks so much for all the detail. Just a quick one from me. Wanted to see if we could just get a little more of your thoughts on the Australia market. You mentioned the in-country content you were able to secure there as a key differentiator, certainly key international markets. So, just wanted to get your thoughts on how you're continuing to think about Australia and your mix and the opportunity presented through being able to get that in-country content?

Yes, what we're seeing is some protectionism emerging globally, partly in response to the US IRA. Increasing domestic content requirements are appearing in various countries as well. In Australia, our team has been proactive, coordinating closely with our supply chain for several months to assess the different component vendors available to us. They've conducted extensive testing of materials and evaluated the financial stability of our partners. We believe we've secured the best options and established a collaborative program with Array. We feel confident about our efforts in Australia, highlighted by winning our first award, and anticipate securing several more throughout this year and next, thanks to our capability to supply domestic content.

Great. Thanks so much for squeezing me in.

Thank you. Our next question comes from Maheep Mandloi with Credit Suisse. Please state your question.

Hey, sorry, just one quick housekeeping. For the 10-K, I haven't seen it out yet. Just wondering on the timing front. Thanks.

Yes, hey, Maheep. Yes, we are working to get that filed here as quickly as possible. Likely, we like to file the 10-K soon after our earnings call. So, we should see it here today or tomorrow and filed at the SEC.

Yes. All right. I appreciate that. Thanks.

Thank you. There are no further questions at this time. I'll hand it back to management for closing remarks.

Thank you, Diego. Just in closing, I just once again would like to thank the Array associates all around the world who continue to demonstrate a passion for execution and a passion for the mission that we're on for our environment. So, thank you again and thank you all for attending.

Thank you. This concludes today's conference. All parties may disconnect. Have a great day.